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The National Economy
The national economy has exhibited surprising resilience in the aftermath of the Hurricanes Katrina and Rita.
Although the storms had a clearly detectable impact on the labor market, the economy otherwise lost little momentum
during the third quarter of 2005. However, sustained increases in energy costs, along with continuing interest rates
hikes, and the inevitable end to the housing boom, still loom as potential risks going forward.
The national economy, as measured by real U.S. GDP, grew 4.3 percent in the third quarter of 2005, following
growth of 3.3 percent in the second quarter.
At the November meeting of the Federal Open Market Committee (FOMC), the Fed voted to raise its target
interest rate another 25 basis points to 4.0 percent. It was the 12th consecutive increase by the FOMC.
Total nonfarm employment rebounded in November, growing by 215,000 new jobs, following two months of
little or no growth. The unemployment rate, which is derived from different source data, remained at 5.0 percent
in November.
Retail and food services sales slipped 0.1 percent in October, due primarily to weak auto sales. The October
decline followed a revised 0.3 percent increase in September, but was up 5.7 percent from October 2004.
Excluding autos, retail sales rose 0.9 percent, boosted by last month's ongoing strength in chain-store sales.
Clothing sales jumped 3.1 percent last month compared with a 0.3 percent decline the previous month.
The Consumer Price Index (CPI) posted a 0.2 percent gain in October, following a 1.2 percent rise in September
¯the biggest increase since March 1980. Excluding food and energy prices, the core CPI rose 0.2 percent, a
shade higher than the 0.1 percent gain posted in each of the last five months. Energy costs, after rising sharply in
each of the previous three months, declined 0.2 percent in October.
Industrial production, a measure of output at the nation's factories, mines, and utilities, increased 0.9 percent in
October rebounding from a drop of 1.5 percent in September. Capacity utilization for total industry rose 0.8
percentage point to 79.5 percent.
The Institute for Supply Management’s (ISM) manufacturing index grew in November for the 30th consecutive
month, registering 58.1 percent, a decrease of 1 percentage point from October's reading of 59.1 percent. The
ISM nonmanufacturing index eased somewhat in November to 58.5 percent from October's 60 percent.
New home sales rose by 13.0 percent in October (seasonally adjusted over September), and were 9.0 percent
above the October 2004 pace. However, existing home sales cooled in October declining 2.7 percent, but were
3.7 percent above the October 2004 level. Housing starts declined 5.6 percent in October, and were down 2.3
percent from October 2004. Building permits for new housing construction dropped 6.7 percent from September,
and were 1.1 percent below October 2004.
The Conference Board's U.S. leading index rose sharply by 0.9 percent in October, and now stands at 137.9. This
follows declines of 0.8 percent in September and no change in August. The Conference Board's Consumer
Confidence Index stands at 98.9 up from October's 85.2 percent reading. The University of Michigan’s
consumer sentiment index rose to 88.7 in early December from November's final reading of 81.6.
Equity markets have fluctuated over the past several months in response to the rise and fall of energy prices and
have made little ground from the end of last year. As of November 29, 2005, the S&P 500 index of stock prices
was 4.5 percent above its 2004 year-end high of 1213.55. However, it was 63.3 percent above its October 9, 2002
low of 776.76.
The New York State Economy
Statewide Employment for October 2005
Total New York State nonfarm employment declined by 8,900 jobs in October to 8,541,800, on a
seasonally adjusted basis, following revised gains of 15,200 in September and 7,900 jobs in August. This
is the first employment decline since January of 2005.
New York State private employment lost 4,500 jobs in October, seasonally adjusted, following growth
of 5,900 jobs in September and 7,400 jobs in August. Since the end of New York's most recent
recession in August 2003, the State has added more than 150,000 private sector jobs. The government
sector lost 4,400 jobs in October, following revised gains of 9,300 in September and 500 in August.
Data for October indicate that private sector job gains only occurred in the professional & business
services; financial activities; and trade, transportation and utilities. Manufacturing lost 2,100 jobs,
following two consecutive months of job gains.
Not seasonally adjusted, New York State employment grew 0.8 percent in October 2005, with the
addition of 64,300 jobs when compared to October 2004. This represented the slowest rate of yearover-
year growth since March 2005. The private sector was responsible for all of October’s gains,
adding 64,600 jobs, for growth of 0.9 percent.
The State’s unemployment rate dropped to 4.9 percent on a seasonally adjusted basis, down from 5.3
percent in September 2005, and 5.5 in October 2004. The national unemployment rate was 5.0 percent
in October, down from 5.1 percent in September, although the national and state-level data are not
strictly comparable. The unemployment rate is based on different source data than the nonfarm
employment report.
The Empire State Manufacturing Survey indicates that conditions for New York manufacturers
improved substantially in November. The general business conditions index rose to 22.8 percent, from
12.7 percent in October. The new orders and shipments indexes inched higher, while the unfilled
orders index rose sharply, to a level not reached since 2001. The indexes for both prices paid and prices
received were positive and higher than last month, an indication of upward pricing pressures. The
employment index rose to its highest level of the year. Future indexes indicated an expectation that
conditions will continue to improve and that prices will continue to rise over the next six months. The
survey, conducted by the Federal Reserve Bank of New York, is of primary interest to the markets, as it
is the first report on manufacturing for the month.
NYS Division of the Budget Page
Percent
Growth Rank State
Percent
Growth Rank
AL 1.9 21 KY 1.4 34 ND 1.9 16
AK 2.1 14 LA (2.3) 51 OH 0.5 47
AZ 4.5 2 ME 0.7 45 OK 1.4 29
AR 1.0 41 MD 2.3 11 OR 3.8 5
CA 1.9 17 MA 0.9 44 PA 1.2 36
CO 2.1 12 MI (0.7) 50 RI 1.4 32
CT 1.4 30 MN 1.5 26 SC 0.2 48
DE 1.9 20 MS 0.0 49 SD 1.9 18
DC 1.6 23 MO 1.2 38 TN 1.1 39
FL 3.6 7 MT 2.4 10 TX 1.4 33
GA 0.6 46 NE 1.5 24 UT 4.0 4
HI 3.7 6 NV 6.8 1 VT 1.7 22
ID 4.0 3 NH 2.1 15 VA 1.9 19
IL 0.9 43 NJ 1.3 35 WA 2.7 9
IN 1.5 28 NM 2.1 13 WV 1.2 37
IA 1.4 31 NY 1.1 40 WI 1.0 42
KS 1.5 25 NC 1.5 27 WY 3.2 8
US Total1 1.8 US Avg.2 1.6
Source: Economy.com; DOB staff estimates.
With private sector employment growth of 1.1 percent through October, New York ranks 40th among
the 50 states and the District of Columbia in year-to-date growth, with states ranging from a high of 6.8
percent growth in Nevada to a decline of 0.7 percent in Michigan. Louisiana showed a decline of 2.3
percent reflecting the negative impact of the hurricanes on employment. Our bordering states of New
Jersey, Connecticut, and Pennsylvania are growing at rates slightly above New York but below the
national average of 1.6 percent growth.
Regional Employment for October 2005
Growth in total private sector employment in the upstate region continued to deteriorate in October,
rising only 0.4 percent, on a year-over-year basis, following growth of 0.5 percent in September and 0.6
percent in August. In the downstate region, private sector employment growth was down from
September, but generally healthy at 1.2 percent in October, following growth of 1.5 percent in both
September and August
NYS Division of the Budget Page 5 12/12/2005
% Growth Level
Total Private Total Total Private Total Private
Statewide 0.8 0.9 8,609,500 0.4 0.6 0.9 1.1
Downstate 1.0 1.2 5,445,800 0.5 0.7 1.1 1.4
New York City 0.9 1.2 3,600,600 0.2 0.4 1.0 1.3
Long Island 0.8 1.0 1,261,900 0.9 1.2 1.0 1.3
Rest of Downstate* 2.1 2.1 583,300 1.4 1.4 2.2 2.1

Upstate manufacturing employment growth fell 3.3 percent in October following a 2.9 percent decline
in September, while downstate manufacturing declined 1.8 percent, slightly less than the 2.2 percent
decline in September. This compares to nationwide manufacturing employment declines of 0.7 percent
in October and 0.9 in September
Finance Industry
Financial results compiled by the Securities Industry Association (SIA) for NYSE-member firms show pretax
profits of $1.7 billion for the second quarter of 2005, bringing first-half profits to only $4.4 billion,
substantially lower than the $6.8 billion earned in the first half of 2004. For the third quarter, SIA projects
that the profit picture will improve, reaching an estimated $5.6 billion. SIA also forecasts that full-year
2005 pre-tax profits will reach $13.4 billion, near, but still below the $13.7 billion in profits earned in 2004.
The value of U.S. true IPO activity (excluding closed-end funds) remained weak in October at $1.6 billion,
following volume of $1.6 billion in September and $6.6 billion in August. Total IPO volume of $32 billion
for the first 10 months 2005 was 15.9 percent below the same period last year.
The value of announced merger-and-acquisition (M&A) activity for the second quarter of 2005 shows an
increase of 22.0 percent from first quarter results, bringing the value of announced M&A deals for the first
half of 2005 to $595.5 billion. SIA estimates that by year’s end, total deal value will top $1 trillion for 2005.
The yield on the 10-Year Treasury note averaged 4.46 in October 2005, up 26 basis points from September
and up 37 basis points from October 2004. The average yield thus far for November is 4.54 percent.
Division of the Budget Economic Indices
The Budget Division's New York State Index of Coincident Economic Indicators was virtually flat in
September, following a 0.5 percent increase in August. Index results show that the State’s two-year old
expansion remains well on track (see Figure 2). Historically, three to five consecutive declines of
significant magnitude in the Coincident Index have signaled the start of a recession. The index is
constructed from four monthly economic series: private employment, manufacturing hours worked, the
unemployment rate, and sales tax collections.
The Budget Division’s New York State Index of Leading Economic Indicators provides a forecast for the
growth rate of the Coincident Index twelve months into the future (see Figure 3). The Leading Index
predicts that the State’s economy will sustain healthy, albeit slower, growth over the next 12 months. The
Leading Index, which has been a reliable indicator of the future direction of the economy, is based on five
leading economic variables: the U.S. Index of Leading Economic Indicators (excluding stock prices and the
interest rate spread), New York housing permits, New York initial unemployment benefit claims, stock
prices, and the spread between the 10-year U.S. Treasury bond and the federal funds rate.
The New York State Recession Probability Index estimates the probability that the State economy will be
in recession 12 months hence. The Index peaked at 97.2 percent in May 2001, and stands at a mere 7.0
percent for September 2005
The Budget Division’s New York State Index of Fiscal Conditions was 9.8 percent higher in October than
the same month last year (see Figure 5). For the current fiscal year to date, the index is up 10.6 percent
over the same period in 2004-05. Tax receipts tend to track the progress of the business cycle with a lag
due, in part, to the time lag between actual economic activity and the statutory due dates for tax payments.
The New York State Index of Fiscal Conditions provides a comprehensive assessment of the State’s fiscal
health by combining the information contained in four of the State’s most broad-based revenue sources
into one single indicator. The Fiscal Index is based on the four series of tax collections: personal income
tax withholding, the sales tax, the corporate franchise tax, and the real estate transfer tax.1 These series can
be extremely volatile; the standard deviation in the Index’s monthly year-over-year growth rate is about 10
percentage points. Thus, a one-month swing of 3 percent may be due to random fluctuation in the
collections data rather than a genuine indication of an underlying trend. Generally, three to five
consecutive monthly declines are indicative of a change in revenue trends. In order to assess the true
underlying trend in receipts, adjustments are made to the collection series to remove regular fluctuations
associated with the time of year, as well as the effects of inflation. The underlying data are also adjusted to
remove the impact of changes in tax law, including the increases which took effect on July 1, 2003. The
adjustment process can result in values that differ substantially from the original series.
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